Earning Release

Pohang Iron & Steel Co. (NYSE:PKX) reported its 1Q 09 results on 10 April 2009. While revenues matched our expectations, profitability came in below our estimates as falling steel prices were compounded by higher-than-expected Cost of Goods Sold (COGS). However, despite these results and a cut in Management’s FY 2009 top-line forecast, we do not foresee any significant reduction in our target price. Therefore, as we believe the company is fundamentally undervalued, we maintain our BUY rating. We will reassess our 6-12 month target price and rating for the common stock in our next update report. We continue to anticipate a significant negative currency impact on the ADR over the coming 6-12 months. Therefore, we maintain our SELL rating. We will reassess our ADR (4 ADRs = 1 common share) rating in our next update report.

Koninklijke Philips Electronics N.V.’s (NYSE:PHG) 1Q 09 sales were below our expectations, reflecting weak demand for products in the Consumer Lifestyle and Lighting segments, amidst deteriorating global economic conditions. Adjusted2 EBITDA was below our estimate, primarily due to operating losses for the Consumer Lifestyle and Lighting segments. However, we expect recent acquisitions in the Healthcare and Lighting segments to improve Philips’ performance over the medium term. Therefore, we maintain our HOLD rating for the common stock and will reassess our target price and rating in our 1Q 09 update report. We maintain our SELL rating for the ADR based on our expectation of a negative currency impact over the medium term. We will reassess our target price and rating in our 1Q 09 update report.

News

Carnival Corporation’s (NYSE:CCL) NYSE common stock achieved our target price on 09 April 2009. We believe this reflects investor confidence over the company’s better than expected 1Q 09 results and the company’s efficient cost control measures. However, due to the limited performance visibility for the leisure industry in the current economic environment, and following the increase in the NYSE common stock price, we believe the medium term upside potential has been exhausted. Therefore, we are moderating the common stock rating from a BUY to a HOLD. We will reassess the NYSE common stock rating in our next full update report in the coming weeks. We reiterate the European stock a BUY as we continue to expect a significant positive currency impact on the European stock over our investment horizon. We will reassess the European stock in our next full update report in the coming weeks.

Manulife Financial Corporation’s (NYSE:MFC) common stock price reached our target on 09 April 2009. The increase in price reflects the company’s fundamental strength and an improvement in global financial markets. Manulife’s common stock increased 12.3% on 08 April 2009 after Wells Fargo & Co posted earnings which beat analyst estimates and expectations that other banks will do so. However, at current levels, we believe that the company’s fundamental upside potential has been exhausted. Although the current target price does not suggest a HOLD rating, we downgrade the common stock from a BUY to a HOLD only based on our broadly positive outlook for the company. We will reassess the common stock rating for Manulife after the company announces its 1Q 09 results on 07 May 2009. We downgrade our rating for the NYSE stock from a HOLD to a SELL based on our fundamental outlook and continued anticipation of a negative currency impact over our investment horizon. We will reassess the NYSE stock rating for Manulife once the company announces its 1Q 09 results on 07 May 2009.

Melco Crown Entertainment Limited’s (NASDAQ:MPEL) ADR achieved our target price on 09 April 2009 after a significant price appreciation. This rise in ADR price reflects the general revival in market confidence and a slowdown in decline of Melco’s monthly casino revenues. Following the price appreciation and given limited visibility of gaming industry recovery and the dependence of the company on a successful opening of the City of Dreams casino, we believe the medium term upside potential has been exhausted. Therefore, we moderate the ADR from a BUY to a HOLD over our 6-12 month horizon. We will reassess the ADR rating in our next full update report. We maintain our current BUY rating for the European stock based on our fundamental outlook and an expected positive currency impact on the European stock in the medium term. We will reassess the European stock1 target price and rating for Melco in our next full update report.

The Primus Guaranty Ltd. (NYSE:PRS) NYSE common stock has appreciated significantly since our 4Q 08 & FY 2008 update report, reflecting market reaction to the acceptance of new standards under “the big bang protocol” on 08 April 2009, aimed at improving transparency and confidence in the credit derivatives market, as well as a general improvement in financial markets over the period. However, our outlook for Primus remains negative given lack of earnings visibility in challenging operating conditions. Therefore, we maintain the NYSE common stock a SELL. We will reassess our target price and rating in our next update report. Despite our expectation of a positive currency impact over the medium term, we downgrade the European stock from a HOLD to a SELL based on our fundamental concerns and current price level. We will reassess our target price and rating in our next update report.

Total S.A. (NYSE:TOT) has sweetened its bid to acquire Canada based oil exploration company, UTS Energy Corporation (UTS), by 35%. The company is aggressively looking to increase its oil reserve base in order to improve future hydrocarbon production. As the UTS major shareholders still view the offer as inadequate, we expect Total to raise the offer again as the deal would lead to the acquisition of a significant reserve base for the company. We maintain our current BUY rating for the company’s common stock and we will reassess the common stock rating for Total after it releases its 1Q 09 results. We anticipate a negative currency impact on the ADR2 over the medium term. However based on our fundamental outlook for the company and current price levels, we upgrade our ADR rating from a SELL to a HOLD until we reassess the company in our next update report. We will reassess the ADR (1 ADR = 1 common share) rating for Total after it releases its 1Q 09 results.

Baidu, Inc.’s (NASDAQ:BIDU) ADR achieved our target price on 09 April 2009, supported by broader market recovery and fundamental factors outlined in our update report. As the current price supports a HOLD rating, we are temporarily downgrading the ADR rating to a HOLD. We will reassess our rating for the Baidu ADR after the company announces its 1Q 09 results in April 2009. As we anticipate a positive currency impact on the European stock over the next 6-12 month horizon we do not expect a change in our current rating for the European stock. We will reassess the rating and target price for the European stock in our next update report.

Mobile TeleSystems OJSC’s (NYSE:MBT) ADR achieved our target price on 09 April 2009, closing at US$36.75, reflecting a revival in Russian equity markets. Going forward, we expect robust growth in Russian Average Revenues Per User (ARPU) to drive MTS’s top-line growth. While we believe the company has strong fundamentals, as the current ADR price does not supports a BUY rating, we are temporarily downgrading the ADR rating from a BUY to a HOLD. We will reassess our Russian stock rating for MTS in our next full update report once the company releases its 1Q 09 results. We maintain our BUY rating for the Russian stock, as we expect a positive currency impact over our 6- 12 month investment horizon. We will reassess our Russian stock rating for MTS in our next full update report once the company releases its 1Q 09 results.

The Vimpel-Communications (NYSE:VIP) ADR achieved our target price on 09 April 2009, closing at US$9.86, representing broader market movements in the Russian economy coupled with positive investor sentiments over its merger plans with Kyivstar, which if approved will strengthen its foothold in Ukraine. Going forward, we expect top-line to be driven by impressive performance from Russian operations. While we believe the company has strong fundamentals, as the current ADR price no longer supports a BUY rating, we are temporarily downgrading the ADR rating from a BUY to a HOLD. We will reassess our target price and rating in our FY 2008 update report once the company releases its FY 2008 results. We maintain our BUY rating for the Russian stock, as we expect a positive currency impact over our 6- 12 month investment horizon. We will reassess our Russian stock rating for Vimpelcom in our next full update report once the company releases its FY 2008 results.

XL Capital Ltd.’s (NYSE:XL) common stock price has appreciated significantly since our 4Q 08 and FY 2008 update report dated 09 April 2009, including a sharp increase on 09 April 2009 itself, reflecting the impact of broad-based improvement in equity and benchmark indices on this volatile stock. However, considering limitations on the company’s ability to write new business, as well as its exposure to US Mortgage and Asset Backed Securities, we maintain a cautious outlook for the NYSE common stock, and at current levels we downgrade the rating to a SELL. We will reassess our NYSE common stock rating for XL Capital after the company announces its 1Q 09 results on 27 April 2009. Based on our anticipation of a positive currency impact on the European stock, we maintain our BUY rating for the European stock. We will reassess the European stock rating for XL Capital after the company announces its 1Q 09 results on 27 April 2009.

We had downgraded the Satyam Computer Services Ltd (NYSE:SAY)common stock to a SELL on 07 January 2009 following an announcement that the company’s financial statements for the past several years were fraudulent. On 13 April 2009, Satyam Computer Services Ltd (Satyam) announced that Tech Mahindra would purchase a controlling stake in the company after the latter emerged as the highest bidder. Although this brings in a credible Management, capital infusion and an INR58 offer price for 20% of existing shareholders, there still exists considerable lack of visibility over the future of the company on account of which we upgrade the ADR from a SELL to a HOLD. We will reassess the rating for the company after the company releases restated results. We upgrade the ADR rating from a SELL to a HOLD in line with our fundamental outlook.

Home Inns and Hotel Management Inc.’s (NASDAQ:HMIN) ADR achieved our target price on 09 April 2009, reflecting the impact of a general recent improvement in financial markets and the robust increase in the company’s 4Q 08 revenues. Although the ADR price level of 13 April 2009 no longer supports a HOLD rating, we are downgrading the ADR to a HOLD only as we do not expect significant downside in the ADR price given general improved sentiment prevailing in financial markets in addition to optimism regarding the impact on the Chinese hotel industry of the World Expo event to be held in Shanghai in May 2010. We will be reviewing our target price in our next update report. We reiterate the European stock a BUY as we continue to expect a significant positive currency impact over 6-12 months. We will reassess the European stock in our next update report.

Mindray Medical International Limited’s (NYSE:MR) ADR achieved our target price on 09 April 2009, closing at US$22.23. At current levels, we believe the ADR is fairly priced. Consequently, we downgrade the ADR from a BUY to a HOLD. We will reassess our target price and rating in our next update report, once the company announces its 1Q 09 results. We maintain our BUY rating for the European Stock based on our expectation of a positive currency impact over the medium term. We will reassess our target price and rating in our next update report, once the company announces its 1Q 09 results.

Seagate Technology (NYSE:STX) released its 3Q 09 preliminary results and guidance for 4Q 09. The preliminary results indicate lower-than-expected performance at the operating level. Going forward, we continue to expect pricing pressure, lower demand for enterprise class products and lower utilization rates to negatively impact earnings of the company over the medium term. Hence, we maintain our SELL rating and will reassess our target price and rating in our next update report, once the company releases its 3Q 09 results. The European stock has appreciated significantly and no longer supports our HOLD rating. Hence, we downgrade the European stock from a HOLD to a SELL. We will reassess our target price and rating for the European stock in our next update report, once the company releases its 3Q 09 results.

New Valuations

Deutsche Telekom AG (NYSE:DT) witnessed net-additions in the broadband segment for the first time in the past few quarters reflecting upgraded network quality, strategic marketing offers and reduced tariffs. In order to match pace with the Federal Government’s broadband strategy and to comply with the targets set for 2010 and 2014 DT is aggressively incurring capex in the broadband segment, which is expected to fetch rich dividends especially in these recessionary times, where the majority of companies are facing financial difficulties and have delayed expansion plans. Robust operating cash flows, sound liquidity reserves, strong redemption capabilities and the availability of credit facilities enable the company to incur high levels of investment for establishing a VDSL network. In addition, strategic restructuring of the entire Business Customers segment, (depicted positive growth on a quarterly basis), is likely to prove beneficial as the company focuses on the top 400 corporate ICT solutions customers. We also remain encouraged with the growth recorded by the Mobile Communications segment, as T-Mobile USA, is expanding its 3G HSPA network, which is anticipated to boost data revenues.

PT Indosat Tbk (NYSE:IIT) During the quarter Indosat managed to add 1.0 mn subscribers with a y-o-y increase of 48.7%, partially offset by a decline in blended ARPU due to the continued decrease in tariffs. Going forward although we expect price wars to decline, we also anticipate subscriber-base growth-rate to decline in light of Indonesia’s weak macro outlook. Moreover considering deteriorating GDP growth and volatile financial markets, Indosat’s Management has decided to halve its capital expenditure for FY 2009 as compared to FY 2008. As Indonesia faces its slowest expansion over the past eight years, we expect the trend of lower investment to be followed by other carriers as well. In light of this, although Wireless revenue growth is expected to subside going forward, we expect considerable growth in fixed-line data and fixed-line voice segment to help propel revenues. Furthermore, EBITDA margin is expected to decline over the next two years in light of increased cost of services resulting from increased frequency fees and SIM card costs.

HDFC Bank Limited (NYSE:HDB)Indian Wholesale Price Index (WPI) inflation stood at 0.26% for the week ending 28 March 2009, compared to 12.4% for the month ending 30 August 2008, and the Index of Industrial Production (IIP) fell by 1.2% in February 2009, following a fall of 0.5% in January 2009. Meanwhile, the International Monetary Fund (IMF) has cut its forecast for Indian GDP growth to 5.1% in 2009 and 6.5% in 2010 (source: World Economic Outlook, January 2009). Considering these indicators, we expect credit offtake to moderate, although Reserve Bank of India (RBI) moves to increase liquidity should partially limit this. Since mid-September 2008, the RBI has cut rates a number of times, with the benchmark repo rate falling from 9.0% to 5.0%, the Statutory Liquidity Ratio (SLR) falling by 100 bps to 24%, and the Cash Reserve Ratio (CRR) falling from 9.0% to 5.0%. The RBI also cut its reverse repo rate to 3.5% in January 2009. Going forward, we expect the RBI to cut its benchmark rates by around 50 bps further in order to stimulate the economy. However, despite these moves, we do expect default rates to rise, with a negative impact on asset quality over our investment horizon. In response, we expect HDFC Bank to pursue cost-cutting measures in order to support earnings growth. Overall, our fundamental outlook remains neutral for the coming 6-12 months.

Chunghwa Telecom Ltd(NYSE:CHT)registered a y-o-y decline in revenues during the quarter, driven by price cuts imposed by the National Communications Commission (NCC) in fixed-line and ADSL services, partially offset by increased revenues from the Internet & data segment (driven by increased subscriber-base). Going forward, we expect Chunghwa to face stiff competition from small telecom operators (as they provide cheap tariff packages to attract subscribers) as well as from cable operators (as they provide access services at lower prices). Accordingly, we expect Chunghwa to marginally loose market share. Furthermore, we expect a decline in fixed-line tariffs and reduction in ADSL service fees to negatively affect top-line growth, going forward. Conversely, in order to ease margin pressure Chunghwa has implemented an effective cost reduction programme, based on which we expect marketing expenses and labor costs to decline over the next two years. In addition, we expect cost of services to increase, as we expect Chunghwa to provide more handset subsidies due to intensified competition. In light of the subdued revenue growth expected, coupled with the declining EBITDA margin we have a muted outlook for the company.

Nomura Holdings Inc (NYSE:NMR) Japanese GDP contracted by 12.1% on an annualized basis in 4Q 08, reflecting weakness in exports; according to the Financial Times, exports fell by nearly 50% in the year ending February 2009. The IMF expects the Japanese economy to contract by 5.8% in 2009 and 0.2% in 2010 (source: IMF staff note to a G20 ministers’ meeting, Global Economic Policies and Prospects, 13-14 March 2009). The slump in exports and GDP is likely to lead to a fall in demand for credit, which will constrain interest income. Meanwhile, the IMF expects world GDP to fall by 0.5%-1.0% in 2009, and the World Bank expects a fall of 2% (source: Global Economic Prospects, 30 March 2009). As a result, demand for capital is likely to suffer and the Investment Banking segment is therefore expected to face difficult conditions. However, we remain encouraged by Nomura’s exit from the US RMBS market, as well as the fact that it is proactively hedging its US CMBS exposure. The company’s initiatives to focus on retail business are a positive move, as are its efforts to trim non-interest expenses. Nomura is aiming to cut its expenses by 10% in the next fiscal year, including a cut of 20%-30% in monthly compensation, reflecting lower performance-linked benefits. However, we remain concerned about the Japanese and Global Markets businesses, considering their gross exposure to monoline insurers.

Rio Tinto PLC (NYSE:RTP) In FY 2009, we expect contract rates for iron ore to be slashed, reflecting a slump in spot rates since July 2008. Rio Tinto has also announced production cuts across in its alumina and aluminum businesses, in response to faltering demand. This trend is expected to be repeated throughout all metals businesses during 1H 09. However, we expect demand to recover from FY 2010 onwards, with Chinese steel production leading the way. Meanwhile, over the near term, lower prices for coke and energy are expected to partially offset the impact of lower prices realized on the company’s products. In addition, Rio Tinto has secured an investment from Aluminum Corporation of China, which includes US$7.2 bn in convertible junior debt (as discussed in our company news alert dated 12 February 2009). This will drive up Rio Tinto’s interest expenses and dent its net margin over the near term. However, the company plans to use these funds, along with funds released by cost-cutting and a reduction in capex, to repay US$10 bn in senior debt by the end of FY 2009. This will effectively cut the company’s interest expenses from FY 2010 onwards. Despite this, and despite the anticipated recovery in metal prices in FY 2010, we believe the recent surge in the ADR price has left the company overvalued.

Canadian Pacific Railway Ltd(NYSE:CP) We continue to expect volumes to be negatively impacted across all of CP’s segments, primarily due to the continuation of the economic slowdown over our investment horizon. Despite favorable year-onyear comparisons due to consolidation of the Dakota, Minnesota & Eastern Railroad Corporation (DM&E) operations with CP’s results from 30 October 2008 onwards, CP’s carloads (a measure of volume) declined 17.4% y-o-y during 1Q 09. CP releases its carload data on a weekly basis. We expect revenues will remain flat y-o-y in FY 2009, as the negative impact of weaker volumes and the removal of fuel surcharges will be offset by higher freight rates, in line with Management’s expectations, and a positive currency translation impact from our forecast USDCAD rate. We expect the company to benefit from a significant depreciation of the Canadian dollar relative to the US dollar, as a significant proportion of the company’s revenues are denominated in US dollars. However, the same currency movement will have a negative impact on the company’s FY 2009 operating performance due to the company’s significant US$ denominated costs. In addition, we expect expenses will remain high reflecting the integration costs of the DM&E acquisition. However, fuel costs are set to decline significantly reflecting ore forecast decline in crude oil prices for FY 2009, which we expect to more than offset the negative currency impact on margins and the additional integration expenses. Consequently, we expect operating margins to remain flat in 1Q 09, but forecast an increase going forward. We expect higher interest expenses in FY 2009 to depress net margins as the increase in debt used to finance the DM&E acquisition boosts interest expenses. Going forward, we expect signs of an economic recovery in FY 2010 to lead to volume growth in that year, supporting margin expansion for CP. However, the expansion of our margin estimate has been diluted by our expectation of an increase in fuel prices during FY 2010.

Sinopec Shanghai Petrochemicals Co., Ltd (NYSE:SHI) The current downturn in the global economy is having a negative impact on the demand for petrochemical products. In 2H 08 the company witnessed a decline in its sales volumes across all its product lines. Subsequently, declining demand is pushing down the company’s average selling prices. However, SPC believes that the price of some of its petrochemical products have bottomed out and expect prices to at least stabilize in the near future. Even if prices stabilize and begin to improve from current levels, they will remain lower than those of FY 2008. This, together with the weak demand outlook, will weigh heavily on the company’s FY 2009 revenues. Despite these factors, we do expect the company to return to profit in FY 2009 as lower average crude prices will significantly reduce the company’s crude oil purchase costs (113.8% of turnover in FY 2008). Hence, based on our fundamental outlook, we believe SPC’s common stock to be fairly valued at current price levels.

Semiconductor Manufacturing International Corporation (NYSE:SMI) For the first time since FY 2003, SMIC experienced a y-o-y decline in annual sales in FY 2008. On 25 February 2009 Gartner Inc. forecast the semiconductor industry to experience a further decline of 24.1% y-o-y in 2009. We believe that foundries will broadly underperform the semiconductor industry in 2009 due to the significant shortfall in demand, evident in Management’s expectation of a 50% q-oq decline in SMIC’s sales for 1Q 09. However the recent demand boost from Mainland China triggered by the government stimulus package announced for consumer electronics products is expected to provide some relief for the company in the near term. In addition, the scheduled full commercial launch of TD-SCDMA technology in China is expected to further support revenues due to SMIC’s strategic alliance with Datang Telecom Technology & Industry Holdings Co., Ltd. (Datang) (as discussed in our company news alert dated 10 December 2008). Nevertheless we believe the collapse in worldwide demand will more than offset the current boost from China. Subsequently we expect a revenue decline of 40.5% y-o-y in FY 2009. Moreover a reduction in utilization levels from historical levels of over 85% is expected to undermine margin performance in future. Although we expect a recovery in top-line in FY 2010 in the wake of an anticipated recovery in demand during the year we do not expect sales to reach FY 2008 levels. Furthermore, we believe the significant recent appreciation in the ADR price has left the ADR overvalued at the current levels.

China Petroleum and Chemical Corporation (Sinopec) (NYSE:SNP) In accordance with the Energy Information Administration‘s (EIA) short-term energy outlook report, dated March 2009, Chinese oil consumption is expected to increase to 8.17 mn barrels per day (mmbpd) in FY 2009, compared to 7.98 mmbpd in FY 2008, while total world oil consumption is expected to decline from 85.65 mmbpd consumed in FY 2008 to 84.27 mmbpd in FY 2009. Hence, even in the current recessionary environment, we expect the demand for the company’s refined oil products to remain stable. On 24 March 2009, the Chinese government announced a hike in the market prices of gasoline and diesel. We believe that the Chinese government is moving prices swiftly to compensate for the change in international crude prices, enabling downstream companies to pass on incremental crude oil purchase costs to end consumers. International crude prices have been moving upwards after they bottomed out at US$31.41 on 22 December 2008. We expect crude oil prices will move up further from current levels, however we believe that, on average, the price of crude oil will be lower in FY 2009 compared to FY 2008, impacting the company’s top-line as the company’s average sale prices will decline accordingly. Sinopec’s margins are set to benefit from the lower average oil price in FY 2009, as the company’s input costs will reduce significantly y-o-y. Hence, based on our fundamental outlook for the company, we maintain our current BUY rating for Sinopec’s common stock over our 6-12 months investment horizon.

Distribucion y Servicio D&S S.A (OTC:DYSVY) In our 3Q 08 update report, we highlighted the expansion plans of DYS into the Peru supermarket industry, aimed at the middle and lower-middle income group, due to lower penetration levels. However, the company has now denied starting its operations in Peru this year, based on the current weak market conditions. The company is expected to spend US$87mn to build 2 new malls to expand business across the Chilean supermarket industry and is also expected to expand its real estate business, going forward. In addition, the company is expected to open more stores under the Aceunta and Ekono brand format, which will further support top-line growth. With a 32% market share in the Chilean supermarket industry, we believe DYS will benefit from its strong market position and anticipated expansion plans across Chile by opening new stores and malls. In March 2009, Wal-Mart Stores Inc., increased its stake in DYS up to approximately 73%.

Herbalife’s (NYSE:HLF)top operating regions ceased to perform well in 4Q 08, primarily due to unfavorable currency impact and decline in volumes. However, going forward, Management expects to focus on volume growth in top markets. Sales growth in Herbalife’s largest market; the US, is expected to be driven by the continued expansion of the Nutrition Club concept and Weight Loss challenge. The Nutrition Club selling concept proved to be beneficial as the company launched a low calorie meal option, selling at US$2, which proved to be popular with consumers seeking a healthier and lower cost alternative to most fast food options. In Mexico, Value Added Tax (VAT) is expected to negatively impact volume growth, as the Mexican government has implemented 15% VAT during August 2008 on certain products, which is likely to impact the import and resale of some of Herbalife’s products. However, the company is expected to focus on the development of new product formulations that are not subject to VAT, gradually allowing the company to shift to volumes which are exempt from VAT. We expect any positive impacts from this transfer to non-taxable products will not be significantly visible during FY 2009. Furthermore, in Brazil, South America’s largest market, sales are expected to experience positive growth, reflecting successful Nutrition Club DMO, partially offset by unfavorable currency impact. However, in Venezuela, the company is facing difficult conditions due to the current volatile economic and political conditions and high inflation. Therefore, to keep pace with rising costs in Venezuela, the company has undertaken price increases, which are expected to result in declining volume growth. However, with strong momentum in place, Herbalife continues to expand in China. During the quarter, the company applied for 5 additional direct selling licenses from the Chinese government, which are likely to be approved during FY 2009. In addition, the company is also implementing Nutrition club DMO in China. Hence, going forward, sales growth in China is expected to be driven by continued new store openings, additional direct selling licenses and introduction of Nutrition Club DMO.

Nabors Industries Ltd. (NYSE:NBR) We expect worldwide drilling activity in FY 2009 to decline significantly compared to FY 2008. Frozen credit markets and overleveraged customers combined with lower commodity prices have had a significant adverse impact on the operations of the drilling industry. Drilling activity has been declining dramatically as illustrated by the Baker Hughes US rig count, which has fallen from its peak of 2,031 at the end of August 2008 to close at 1,005 on 10 April 2009. We believe that hydrocarbon prices will remain depressed throughout FY 2009 causing the rig count to fall further over our investment horizon. We expect major oil and gas companies will reduce drilling activity as they can no longer obtain capital to meet their growth plans and as the near-term drop in commodity prices has resulted in lower E&P spending. Hence, this decline in drilling activity and fall in day rates from 2008 levels will negatively impact Nabors’ revenue in FY 2009 and FY 2010. While the company’s existing projects are on track, we expect new project start-ups to be delayed. We expect more rigs to be stacked industry wide in FY 2009 due to our expectation of a decline in hydrocarbon prices and continued credit contraction. As a result, we expect lower activity, lower prices and contracting margins for both the US sub segment and the Canadian Drilling segment. Management expects capital expenditures to decline from US$1.8 bn in FY 2008 to approximately US$1.1 bn in FY 2009, and then decline further to approximately US$0.6 bn in FY 2010. This spend will result in the deployment of over 30 newbuilds between FY 2009 and FY 2010. However, Management believes its International business will improve in FY 2009 and FY 2010 as it is expecting an increase in drilling activity in Saudi Arabia and Mexico. The company expects an increase in demand for gas rigs in Saudi Arabia for use in the Kingdom’s desalination and fertilizer operations. Drilling activity in Mexico is expected to rise as E&P companies compensate for the drop in production from mature fields. We remain optimistic about the company’s international business and expect it to partially offset the decline in total revenues over our investment horizon. We expect new contracts and an improvement in the company’s backlog during FY 2010, as we foresee signs of recovery in the global economic condition, resulting in positive revenue growth and margin improvement in FY 2011 and beyond. With strong goodwill in the industry and the technological edge Nabors holds over its competitors, we expect Nabors to display robust fundamental in the long run. Moreover, given the recent decline in Nabor’s common stock price, we believe the stock is undervalued and offers significant upside from current levels.

Nissan Motor Co., Ltd. (NASDAQ:NSANY) With the global economy experiencing a significant slowdown, we hold a weak outlook for Nissan’s sales over the next 2 years. However, we expect demand to recover from 2H 10 supported by improving economic conditions. As anticipated, the Average Selling Prices (ASPs) of Nissan’s vehicles has been significantly impacted by intense price competition. In order to maintain market share, we believe this trend will continue until economic conditions improve in 2H 10. The Japanese market contributed 39.0% to net sales in 3Q 09. Furthermore, the Japanese auto market is expected to contract further over short term, due to weak demand for cars, associated with declining consumer spending. The Japanese government announced reductions and tax exemption on some fuel-efficient vehicles to support demand in the Japanese market. We believe this measure will improve overall sales in Japan over the near term. Nissan will utilize this opportunity by introducing 7 new eco-friendly models in April 2009. Moreover, European Investment Bank (the European Union’s long-term lending institution) granted Nissan’s European operations a loan of US$0.55 bn, which will be used to manufacture more fuel efficient vehicles in Britain and Spain. We expect Nissan’s European market share to benefit from the launch of greener vehicles over our investment horizon. In the current scenario, we continue to expect Nissan to experience high inventory pressure, despite under utilization of its capacities. However, Nissan has progressed faster than Toyota and Honda in reducing its inventory and fixed costs. In addition, we believe Nissan’s decision to transfer its manufacturing facilities to low cost regions will positively impact its margins from FY 2011 onwards. Moreover, our outlook for Free Cash Flow (FCF) remains unchanged as we continue to expect higher working capital requirements, which will apply significant pressure on FCF, partially offset by the anticipated slowdown on capital expenditure over the next 2 years. Nissan raised US$1.3 bn (approximately ¥130.05 bn) in Auto Loan Bonds (ALB) from North America, further impacting its outstanding debt position. We expect operating margin to remain under pressure, in-line with our revenue expectations, despite expectations of severe cost reduction measures for the next 2 years. Consequently, at current levels, we believe the stock is over priced and hence maintain our negative outlook.

Panasonic Corporation (NYSE:PC) With Japan being the major contributor (approximately 54% of 3Q 09 revenues) to Panasonic’s revenues, we remain concerned over the performance of the company in light of falling consumer spending levels in the domestic market. Consequently, we expect weak demand for flat panel TVs, Digital Video Discs (DVD) and digital cameras to impact revenues for the AVC Networks segment over the medium term. According to DisplaySearch, an information and consulting provider for display products, global revenues from flat panel TVs (including LCD, Plasma and Organic Light Emitting Display technologies) experienced a 3% y-o-y decline in 4Q 08, despite 17% growth in unit volumes due to significant decline in Average Selling Prices (ASPs). Moreover, DisplaySearch holds a passive outlook for the global LCD and Plasma TV markets, anticipating a 17% y-o-y and 5% y-o-y growth in terms of unit volumes in 2009, compared to a 29% y-o-y and 24% y-o-y increase in 2008, respectively. Although Panasonic anticipates its flat panel TV revenues to increase by 50% in FY 2010, with the launch of an attractive product pipeline, coupled with an expansion of its sales networks, we remain pessimistic over Panasonic’s unrealistic targets in the prevailing deteriorating global economic environment. In addition, we expect the Home Appliances segment to record weak revenues in light of a 3.5% y-o-y decline in consumer spending levels in Japan, in-line with rising unemployment levels, such as 4.4% in February 2009 (Source: The New York Times dated 31 March 2009). We expect the Components & Devices segment to experience a decline in revenues associated with a weak outlook for the global semiconductor market. According to iSuppli Corporation (iSuppli), a market intelligence company for the consumer electronics market, the global semiconductor market (in market value terms) is anticipated to decline 19.6% y-o-y in 2009. This is primarily attributable to the weak demand for consumer related products in the entertainment sector and automobiles. However, we anticipate Panasonic’s focus on emerging markets, such as China and Vietnam, to partially offset the above mentioned negatives. Based on our weak revenue outlook, we expect margins to remain under pressure, partially offset by Management’s on-going cost reduction measures. Moreover, weak operating income, coupled with the expected increase in working capital requirements, is likely to exert significant pressure on Free Cash Flow (FCF) over the next 2 years. However, the anticipated decline in capital expenditure will partially offset the above mentioned negatives. Consequently, our outlook for the common stock remains neutral.

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